If you’re a young adult, you might think that money is hopeless for most people. Most publications and news outlets have labeled millennials as freeloading individuals who would rather spend their money on things they want. It’s common for young adults to live in their parent’s basements and struggle to find well-paying jobs after college.
Despite the negative headlines these stories generate, they don’t represent the reality of today’s young adults. Misrepresentations of them can also be dangerous. The idea that young people earn less than $40,000 a year and only work until they die is frightening. If they’re set up to fail, why bother?
If you’re a young adult, then you have the opportunity to start building wealth right now.
Automate Payments
A great way to start increasing your wealth is by setting up recurring payments for various expenses, such as your bills and retirement contributions. These payments will automatically be deducted from your bank account, ensuring you don’t fall behind and rack up late fees.
However, make sure to review them regularly. This will help you to identify areas where you can improve and increase your savings.
Contribute to Retirement Funds
Despite the tough job market and the rising student loan debt, young adults still have plenty of time to build wealth for their retirement slowly. According to Anthony Montenegro, a financial advisor at The Blackmont Group, there is still plenty of time for them to build wealth.
One of the most important factors people consider when building wealth is the time they have available to take advantage of their investments. According to Montenegro, having more time to build wealth is a distinct advantage over starting to save for retirement at the age of 55.
Even if you have already started to save for retirement, you must continue to increase your contributions each year. This will allow you to take advantage of the tax-free gains generated by your investments.
According to financial advisor Jose Sanchez, you can increase your contributions to your retirement accounts by 1% each year until you reach the point where you can fully fund them.
If you can get away with it, increase your contributions to your retirement accounts by whatever percentage you can. This will allow you to take advantage of the tax-free gains generated by your investments. You can also build wealth by opening a Roth or traditional IRA.
Minimize Living Expenses
Having a budget and an automatic allocation of your income can help keep your expenses and lifestyle under control. Amazon is an excellent example of how easy it is to buy things you don’t need. Jeff Bezos is a multi-billionaire due to the company’s success. Besides cutting back on certain expenses, try implementing other strategies to keep your living expenses under control. These include getting a roommate, reducing your TV subscriptions, and eating at home more. Having a budget can help you grow your wealth faster.
Invest for the Future
According to Don Roork, a financial advisor, young adults tend to make poor investment decisions due to their emotions regarding the market. He said that this is because they are more likely to make mistakes when the market is volatile.
Roork suggests that young adults establish a plan and stick to it to avoid making irrational decisions. He said that volatility is expected in the market, and building a diversified portfolio is an excellent way to take advantage of the market’s changes.
Roork also said that young adults should not allow their emotions to influence their decisions when it comes to investing. He noted that starting in their 20s, they will be ahead of the crowd when the market begins to fall.
Use Extra Income Wisely
Getting a raise or bonus can help boost your standard of living, but it’s essential to set aside some of it. You can use the money for various expenses, but you should also set aside some for your savings. Some experts suggest a 50-50 strategy, which involves half of your new income going to you and the other half going to investments or savings. This method can also apply to tax refunds.
Have an Emergency Fund
According to a 2018 report by the Federal Reserve, about 40% of Americans don’t have enough money to cover an emergency expense. This is shocking, and it’s no surprise that many people fall behind on their bills.
One of the most critical factors that young adults should consider when building wealth is having an emergency fund. This can help them avoid unexpected expenses that could prevent them from achieving their goals. Most experts recommend establishing a savings account for at least three to six months of their income. However, even a few thousand dollars can significantly offset an unexpected expense. Establish an emergency fund in a separate account from your savings and checking accounts. This will allow you to avoid spending it. Also, make sure that the funds earn interest.
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